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The following is a transcript of the podcast episode hosted by Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
To get things started, can you give our listeners a bit of an overview of your organization and what it does and its role within the payments industry?
Barry Kirk, Vice President of Loyalty Strategy at Maritz Loyalty
Maritz Loyalty is a company that, as it sounds, focuses on attracting, engaging, and retaining a company’s best customers and with a particular focus in our practice on behavioral science and artificial intelligence as the best path into that. So we generally work with very, very large brands that have oftentimes tens of millions of customers. Their goal is how to retain the very best customers they have and how to attract new customers and grow their purchasing relationship. To look for those best customers, a lot of the work that we do around loyalty is within the banking and credit card space.
Thank you for that overview. Now Maritz Loyalty recently did a market study looking at loyalty. From that study, how would you describe the correlation between brand loyalty and reward spending habits?
Barry Kirk, Vice President of Loyalty Strategy at Maritz Loyalty
It’s a really interesting insight that came from a number of the responses in the study. We conducted this study and published it earlier this year with an organization called The Wise Marketer where we talked to 2,000 U.S. based consumers to really get at how are they thinking and feeling about the loyalty program experience. So much of what we think about in loyalty is in terms of “Is somebody transacting? Am I getting deposits? Are they using products from the bank, or if I have my credit card product am I literally getting card swipes and transactions?” This is something that we refer to often as mercenary loyalty, where it’s very transactional and we’re essentially paying a customer to be loyal. It’s essentially 90% of what loyalty is in the United States right now. It fits in that category of “I’m paying you to love my brand,” and that’s not a bad thing. Those programs work fairly well, but there’s a secret that underlies that which is that transactions are not necessarily the same thing as attachment to a brand. We also talked about something called inertia loyalty, which is essentially “I’m really just your customer because I feel stuck or I just don’t have the time to go find somebody else. I don’t have time to go and source out a new credit card and switch over to that product.” And interestingly what customers told us in the study was that when they’re looking at for instance banks, they’re putting way more weight on loyalty based on service than they are on the financial value. So that mercenary offer that gets about a 46 percent response out of the study as to “Is that my primary driver of loyalty?”, but 71 percent of customers said that their top driver for loyalty from a bank is actually on the service side not on the points they earn, the rewards they receive. It’s a little different on the credit card side. When you look at what credit card relationships, what customers are telling us, it’s actually pretty even. They are balancing the value of the experience that they get with the card and the service they get on it with the value they get with points. So it’s very important as we look at this question that we don’t just assume it’s about nothing but transactions and it’s about nothing but some kind of reward or what you might actually call a bribe to get somebody to be your customer. You’ve really got to be as focused now on the service side and the experience side of what you’re offering.
Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
I definitely agree and I can speak from my own personal experience. About a year or two ago, I switched financial institutions. It was the service level that got me to switch, mainly because being a typical Millennial, mobile payments was a big factor for me and the financial institution where I was a customer essentially said, “We’re not really looking at incorporating mobile payments into our services though this might be something we look forward to later down the line.” But this other financial institution that I was looking at did support mobile payments. I do agree that when it comes to the financial institutions, it’s really that level of service and not necessarily the reward points that I’m getting for it.
But when we’re speaking about rewards here, why do you think consumers save their rewards points but may not be inclined to redeem them?
Barry Kirk, Vice President of Loyalty Strategy at Maritz Loyalty
A really interesting finding from the study that frankly surprised me is the number of consumers who said, “When I’m in a program, I’m not really that focused on just burning my points as soon as I can.” Seventy-three percent of respondents said, “My primary objective in the program is to save my points up for some future reward.” About 50% of those savers said, “I have a specific reward in mind,” but the other half said, “I’m just saving. That’s what attracts me, and that’s what makes me feel I’ve got value is just accumulating points for whenever I want to redeem them.” Here’s why that’s important: There has been a tendency in the legacy loyalty environment to look at redemption of points and say, “Well, if customers aren’t redeeming their points, they are actually not engaged customers.” What we’re finding is there’s a little different psychology at play there, that in fact if I’m saving my points, that means I’m not redeeming but I’m continuing to transact and I’m continuing to use your product. I’m continuing to engage with online bill pay and with other aspects of the bank for instance. I may be just as or more engaged than the customer who continually earns just enough points to redeem for a $5 gift card. The customer who is redeeming at those very low levels is a customer who could easily leave you tomorrow. The one that is actually storing up points for some significantly larger future reward is a customer who arguably has more stickiness with your brand. And so that’s the thing that is not intuitive oftentimes when we look at it, but the data is telling us we’ve got to rethink that sort of value proposition.
Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
Do you think there’s an opportunity here for financial institutions to get a win-win because as we were talking about before, consumers are looking at the level of service. And so is it an opportunity for financial institutions to say, “We see that this customer is saving up all these reward points. Should we go out and ask the customer, what is it that you’re saving up for? Can we help you? Is there a way that we can help to expedite you to get to that reward value that you’re looking for to be able to redeem them?” So do you think that there’s an opportunity there for financial institutions?
Barry Kirk, Vice President of Loyalty Strategy at Maritz Loyalty
Absolutely. One of the things we might want to look at in a case like that where you have a lot of savers is, “I’ve got a lot of points. What is valuable to me from a points standpoint? What are the higher-value rewards that you have in your catalog?” What I can tell you is that across almost every financial loyalty program in the market, if you look at what customers have traditionally redeemed for, it has been something that looks more like cash whether that’s gift cards that are literally cash back. If that’s what customers want to redeem for, great. You should have that in there. There is reason to have some hesitation about a lot of that kind of redemption because frankly it has a very low what I would call “memory halo.” If I’m redeeming for cash or I’m redeeming for very low-denomination gift cards, I’m probably not going to remember that particular redemption at some later point. What we’re actually seeing, interestingly though, is a trend right now particularly with Millennials is an interest in redeeming for experiences, especially for small experiences like, say, I could redeem my points for a spa day or dinner at some really amazing restaurant. Well that’s going to have a much better memory halo. I’m going to remember that dinner. I’m going to remember that massage I got through my points from my bank much more so than I am the five dollar gift card. More important than saying, “I’ve got a wide range of reward opportunities,” is making sure that I point the customer at the reward opportunity that’s going to be most meaningful to that individual. I think that was really the essence of your question. One of the ways that we’ve started to get much more scientific about that is through artificial intelligence. We had a project recently that was widely published in the New York Times and other places where we designed in AI algorithm that helped predict what HSBC loyalty program members would redeem for that was different from what they’re redeeming for today. It wasn’t a guess. It was actually using a mountain of data: Transactional data, redemption data, data to try to point out, “Well, Ryan has redeemed for one thing today. What other thing might be redeemed for that would be just as enjoyable and maybe more so for him?” The algorithm predicted with a 70% accuracy rate what this other thing might be. What that essentially means is when we ran the campaign, 70% of the people who redeemed points redeemed for exactly what the AI predicted they would want to redeem for. The final point of that is downstream from that particular campaign, we actually see that the customers who were engaged through what the AI predicted are actually exhibiting an increased level of spend on that card and increased level of engagement. So that’s why it’s so important that we begin to think of loyalty in terms of the behavioral science side: what we know about people, what drives them. But also what data can be used, funneled through artificial intelligence, to actually help us predict better what they might enjoy, what might make that great experience.
This is a great segue to the next question that I have for you: What tips would you offer card companies that want to better connect with their loyalty program customers?
Barry Kirk, Vice President of Loyalty Strategy at Maritz Loyalty
Let me talk about the behavioral science part of that for a minute. If you think about what can a bank do, what can a financial institution do, to better engage customers in something beyond mercenary loyalty, to move beyond points? It’s great to offer points and rewards; you probably need to have that to be competitive. But if we got this significant percentage of consumers saying, “The experience is more important or at least just as important to me,” you’ve got to build an experience. Well, the first thing I’d say then is “What are the experiences in life that people find interesting, and can we create that?” One of the things we know from the behavioral sciences is that predictability is not particularly interesting. Things that are highly predictable, that one experiences all the time, the brain actually stops paying attention to. So I would suggest that one thing that is probably not in the DNA of a lot of people that work in banks but needs to be is “How do we make our loyalty program more surprising? How do we make it less predictable? How do we have really interesting things that kind of pop up and come and go on that program that can be in terms of campaigns?” But frankly too many banks, I think, would interpret what I just said as, “Does that mean another bonus campaign?” And that’s definitely not what I’m talking about. We probably have too many bonus campaigns going on in the financial services space. It would be more saying there are certain reward opportunities that have a very short shelf life, like literally maybe they’re only available for a few hours in a given month. As a customer you have to watch for the announcement of when that’s going to come. Maybe that announcement is only going to come a day before, so I have to watch for that. And then the window of opportunity to redeem for that really amazing limited-time reward is maybe two hours long. I think you can see, as I described it, how much more interesting that is than a set of rewards that I already know are there and are always going to be there whenever I get to it, that second scenario doesn’t drive much immediacy of behavior. But the first scenario because I have to pay attention because I’m not exactly sure what is going to happen with it, gives me much more reason to pay attention to that. So I think there are a lot of things that banks can do around that. A pretty small way to get started is just fine-tuning the experience of something that’s worth the customer paying attention to.
Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com
I agree, especially that it’s not a one-size-fits-all, which I think a lot of merchants or banks get trapped into. It really has to be a customized, tailored experience, and in bringing that and an excitement level to it, I think that you hit it very well. It’s exciting for me maybe the first week or so that I sign up for the program because it’s new to me. But over the length of the program it becomes for the customer, “Well, there’s no more excitement. There’s no reason for me to return to that loyalty program to see if there is anything else that I need to be paying attention to keep engaged with that loyalty program as much.” Another thing that I want to pull out from the market study that was conducted is definitions of two terms used before I ask the next question, which would lay the foundation for it.
The market study identified two personas: The first one is “transient loyalist” for loyalty programs, and the other is “resolute loyalist.” Could you define both of those for us first before we go to the next question?
Barry Kirk, Vice President of Loyalty Strategy at Maritz Loyalty
Sure. Transient loyalists we define as customers who have identified brands that they feel connected to, but those same customers are saying, “Yeah, I like the brands that I’m connected to that I buy from today, but I am pretty much always looking for the next better relationship. So I’m always shopping around. I’ve got an eye out for who’s got the better deal, who’s got the better offer, who might be offering a better experience.” The resolute loyalists are consumers who say for the most part once they attach to a brand they stop looking around. They are fixed on that brand. So, for instance, for me, my resolute loyalty is to Starbucks, a brand that I have what I would call “cult loyalty” to. I know I’m paying too much for a cup of coffee when I go there, but I have never compared Starbucks coffee to anybody else’s since that’s my brand. We have customers who fit in both of those categories, but what looking at the study data tells us is that 68 percent of consumers say that they are transient loyalists whereas only 29 percent say they are resolute loyalists. And what that says to me is there is a lot of consumer brand loyalty constantly in play in the marketplace. And so brands that feel. “Well, our customers who buy from us today are going to keep buying from us, this data would suggest you should never assume that. Retention is always going to be a challenge because the majority of consumers are constantly looking around for something better.
That leads into the next question here, which is: How can companies work to change the customers who are transient loyalists, or those who are in it just for the rewards, into what you termed cult loyalists, who identify with the brand such as you might find with people with Apple or Starbucks?
Barry Kirk, Vice President of Loyalty Strategy at Maritz Loyalty
Part of it might be that there’s a segment of the customer base that you can’t shift. We could just accept that probably through the right data analysis, we could identify who in a given category may be a transient loyalist and you’re just going to have to continually barrage them with offers and messages. But there is likely a segment of your customer base who are only transient because you have not fine-tuned the experience yet to where it’s like, “Damn. That’s it. That’s the experience I’ve been looking for and now that you’re offering it to me. I have now become a resolute loyalist.” I think we would say that the biggest move you have to make in order to achieve that is you’ve got to move from what are predominantly those mercenary loyalty tactics where it’s all about an offer or discount or bonus points because the reason that sets you up for transient loyalty is that the mercenary offer is by its the very definition of it is an offer where I should always be looking for somebody to give me something better. That’s the very definition of a mercenary. I go wherever I’m highest paid. That’s where my loyalty is. So if all you’re putting in front of me is mercenary offers, you’re basically telling me this is how you should think about this market that we’re in. But if you begin to change the way you attract a customer into either true loyalty, which is experience based, if you’re offering me interesting or elevated experiences (and you could, by the way, tell me I have to earn those experiences through more transactions), I actually get to move up, and once I move up in your loyalty program, interesting new benefits and access begin to open up for me. That’s a good way to change people into this more resolute loyalty. The other one, that’s a little more challenging, what I referred to earlier as cult loyalty is loyalty where it’s just as much about the tribe of people who are connected to the brand as it is my identification with the brand itself. It could also be around brand values. I have values as a consumer, and if I feel like the brand is matching those values, then I can feel a stronger or more resolute connection to that brand that has nothing to do frankly with the financial value I’m getting. It has a lot more to do with the core part of me. So how do you do that? A brand would need to talk about values. A brand would need to understand better, probably through survey research, what is important to me and what are the right words to use with me. The other thing is bringing in a social component, which could be as simple as giving the opportunities within the loyalty program to connect to social causes like, say, after a major hurricane, make hurricane relief an option that you immediately bring up in the loyalty program so that I can donate my points to that. That’s a way to make me like this is more than just about earning points and getting a discount back from the financial institution. It’s about a way that helps me connect into what’s important to me in the world and feel like I’m making a difference. There are many, many ways to do that. The first question is just to ask yourself, “How do we move this out of that mercenary experience? What can we be doing that feels more like true loyalty and cult loyalty?”
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